Economic Data – Digital Finance Analytics (DFA) Blog

From Here, Where For The Markets?

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto on the way. And as this is the last full trading week, we will also look back at the last year.

There is a nice meme going round, highlighting that high priced stocks attract, others do not, but that does also beg the question, should we follow the crowd – and is the smart money or dump money lurking there? Sometimes its better to zig when everyone else zags!

The MSCI global index was down 0.59% on Friday, through up 0.88% across the week, and the one-year return was 17.14%, as we will see, driven by tech and US markets in the main. Remember though that light trading and short hours mean the markets are capable of giving deceptive signals this past week.

AMP’s head of investment strategy, Shane Oliver, is warning of a “volatile ride” given the sharemarket’s stretched valuations – the ASX 200 is trading at more than 18 times forecast earnings – and heightened geopolitical risk as Donald Trump returns to the White House. Still, Dr Oliver is tipping the ASX 200 to achieve 8800 points. He said the prospect of better growth in late 2025 should deliver “ok investment returns” with the caveat that a 15 per cent market correction during the year was “highly likely”.

JPMorgan’s Jason Steed is adopting a bearish footing, tipping Australia to be the only major sharemarket to decline in 2025. His target of 7900 implies a decline of about 6 per cent from current levels because of a weaker economic backdrop with gross domestic product below 2 per cent, and a softening earnings outlook.

Finally, in crypto. The overall cryptocurrency market capitalisation approached $3.8 trillion, nearly doubling over the past year. To the surprise of many, 11 bitcoin (spot) ETFs were approved by the SEC early January. Since launch, they have attracted more than $40 billion net inflows and their cumulated assets under management are almost as large as those held by Gold ETFs.

Looking ahead to 2025, an especially complex and uncertain future awaits. Expect a reacceleration of US inflation which will cause the FED to pause more cuts, and add-in the possibility of serious geopolitical shocks, and it is easy to get anxious.

The future is complicated by the advent of the new Trump regime, which renders so many different potential paths and potentially false signals. The partnership between Trump and Elon Musk could be key, if that relationship survives. But given the stretched market valuations and rising inflation risks, as global debt expands further, perhaps its not that surprising that some are taking profits, and waiting to see what happens next. Time will tell.

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Shop ‘Til You Drop; Or Not: This Christmas!

Boxing day highlighted the weird financial pressures lurking across Australia at the moment, as shoppers flooded stores to make the most of Boxing Day bargains. More and more shoppers were holding out for a bargain during the festive season as cost-of-living pressures continued to weigh households down. Perhaps It’s really because of cost-of-living challenges that we saw shoppers out in force today. Bargain hunting is a national sport, it seems.

However, while it was once the major shopping event of the year, Boxing Day sales are losing their position against an imported rival.

Consumer advocacy group Choice has warned those entering the Boxing Day fray to do their homework first.

Research from online e-commerce giant eBay predicts Australians could make almost $1 billion from selling unwanted gifts this festive season.

An ABC NEWS Verify investigation has uncovered dozens of online clothing stores pretending to be high-end Australian fashion boutiques. Customers are sometimes shipped cheap, low-quality goods made in Asia, and sometimes, nothing at all. Their investigation focused on stores that had an implied and or explicit physical presence in Australia — ranging from stores using Australian locations in their names to dropshipping stores creating digital images of fake physical shop fronts in Australian locations.

So all up, if you do spend, spend wisely, and be cautious. Bargains may not be bargains and in the online world what you see may not be true. More broadly, in the current financial environment, holding close to your wallet and spending carefully would be a goo new year resolution, even if others want us to spend, spend, spend.

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DFA Live Q&A HD Replay: Tony Locantro’s Christmas Box

This is an edited version of a live discussion with Tony Locantro, as we review 2024, and look ahead towards 2025.

Tony offers several financial services, such as investment management, financial planning, stock selection and fundraising. Tony has helped countless investors and organisations with strategic investment strategies over the last two decades.

His understanding of market psychology has ensured valued investment strategies in bull and bear markets. Because of his ability to understand the small cap market space, Tony has been featured in dozens of well known publications across Australia, such as Small Caps, Sky Business, Digital Finance Analytics, and many more.

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Destroying Tent Cities Does Not Solve The Housing Problem!

Migration into Australia remains too high, and has directly and indirectly caused a massive rise in homelessness. Tent cities have sprung up, and some councils are now trying to clear them moving homeless people on. So today we look at what caused the problem, and what this means for the homeless.

One academic describes the decision by a homeless person to be seen as a “political act”. “They’re demonstrating their kind of deprivation through living in a tent in the public realm, and I’m glad that it pisses people off,” Cameron Parsell, a social sciences professor at the University of Queensland, says. “We should be pissed off. But rather than being pissed off by the people in the park, we should be pissed off about the lack of affordable housing.”

For all the concern about safety, several service providers said the crackdown risked undermining the group most at risk – homeless people themselves.

There are two schools of thought about safety. Many trust in safety in numbers; clearing a park forces people to adopt the other approach, staying out of sight. That doesn’t always work.

Many believe the crackdown is not about safety at all, but about visibility. Keeping homeless people apart keeps them out of sight.

The Guardian article made no reference at all to the migration problem. But my point is that homelessness could be eased if migration was pulled significantly lower, allowing time to catch up on building, and to get people into homes.

But no, Federal Government keeps the tap open, and councils are moving homeless people on from pillar to post. This simply does not solve the problem, and the social consequences will be enormous.

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Dollar Taking No Prisoners As Fed’s Hawkish Cut Spooked Markets!

There was always going to be a question about the Fed’s December decision, would they react to the latest data, or position ahead of the Trump 2.0 policy set coming in 2025? Well, it looks like both were in the minds of the Monetary Policy committee, as Federal Reserve officials lowered their benchmark interest rate for a third consecutive time, but reined in the number of cuts they expect in 2025, signaling greater caution over how quickly they can continue reducing borrowing costs.

The Federal Open Market Committee voted 11-1 on Wednesday to cut the federal funds rate to a range of 4.25%-4.5%. Cleveland Fed President Beth Hammack voted against the action, preferring to hold rates steady.

Markets fell heavily in the US, and Asia, with the DOW and SP500 down more than 2.5% and the NASDAQ more than 3.5% lower. This was the largest post FED market move in 4 years. Falls were widespread. The ASX 200 slid 1.7%.

Bonds were stronger, . The US two-year note’s yield, more sensitive than longer maturities to Fed policy shifts, led the move in Treasuries, rising as much as eight basis points to 4.33%, the highest level since Nov. 25. and the US dollar rose, with the DXY up to 108.10.

The moves have reignited questions about how far central banks across Asia are willing to go to defend their currencies — and how much impact their moves will have. Indonesia’s central bank said on Thursday that it was intervening to push back against a selloff in the rupiah, while the People’s Bank of China used its daily reference rate to support the yuan.

Weaker currencies tend to raise the price of imports to a country, fueling domestic inflation. Further rate cuts could also put more pressure on currencies as investors look elsewhere for returns, exacerbating the impact of dollar strength.

Not good for chances of an RBA rate cut in 2025.

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Wanted Adults In The Budget Room, As Deficits Roar And Games Are Played!

So we got the Mid Year economic Forecast today from the Treasurer, and there was plenty of spin about necessary uplifts in spending, recent tax cuts and government support, and even that the Government is supporting women more than ever.

They were also keen to compare their own efforts with the previous Governments efforts (through they were including the COVID years), and international comparison which showed Australia’s economy still has more capacity, and is in some respects still the best dirty shirt.

But as I discussed with Leith van Onselen just yesterday in our live show, all is not well with this budget, and there will be consequences.

One notable issue was that federal government has cut company tax receipts for the first time since the pandemic because of weaker profits from the mining sector.

But the treasurer maintained most of the government’s long-run commodity price assumptions from the May budget. Iron ore, coking coal, thermal coal and LNG were unchanged at respectively $US60 a tonne, $US140 a tonne, $US70 a tonne and $US10 a metric million British thermal unit. Are these too conservative, and does it represent a hollow log for more spending – probably.

Then there is the so called off-budget issues. Today’s Mid-Year Economic and Fiscal Outlook (MYEFO), which showed that the federal government will spend a record $90 billion “off-budget” over the next four years, obscuring the true situation facing the budget. This off-budget spending does not show up in the underlying budget deficit or surplus despite it imposing a significant cost on taxpayers.

The underlying budget balance that treasurers prefer to focus on hides a heap of so-called “off-budget” spending, such as taxpayer money for the Clean Energy Finance Corporation, the $12 billion Snowy Hydro 2.0 project, wiping 20 per cent off student debts and the $15 billion National Reconstruction Fund.

Tax and other government revenue are hovering near a sustained record high of 25.5 per cent of the economy thanks to once-in-a-generation windfalls.
The unemployment rate is a very low 3.9 per cent and personal income tax is on track for a record $335 billion this year, despite the stage 3 income tax cuts shaving off about $23 billion.

Company tax of $133 billion is just a bit below its all-time high last year, amid elevated commodity export prices.

Total budget revenue is cumulatively higher by about $380 billion over five years compared with Treasury’s forecasts on the eve of the May 2022 election.

Yet, at a time when revenue is booming and the economy is operating around full capacity, the deficit in underlying terms is forecast to be $26.9 billion (1 per cent of gross domestic product), a $1.3 billion improvement since the May budget.

Cumulative underlying deficits over four years are projected to blow out to $144 billion, $21.7 billion worse than expected seven months ago.

Where are the adults in the room because from the budget point of view, they appear to have left years ago, and the result will be more pressure on ordinary households and businesses across the country.

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